THE PLIGHT OF CANADIAN FARMERS
©2000,2001 Francis Pedley
Anyone who has spent time close to the Canadian farming community and understands some of the problems faced by farmers must invariably find themselves exasperated with what one sees happening to the family farm. If one also has even a modest interest in the historical repercussions due from any instability in the area of food production, it should be enough to scare even the most cynical opponent of farm aid. I believe though that one can pinpoint a market mechanism that has been missed and is robbing Farmers of their due profit…and a viable solution to the problem that seems to lie therein.
FARM INCOME AND THE COMMODITIES MARKETS
…Those issues lie within the Commodity and Futures markets. Futures options can be traded anywhere from a few weeks to years before the commodities are even harvested. All the while they are being traded. Profits can be made during this period of time whether the commodity is going up in value or going down (selling long / selling short). These profits represent costs, which are added on to prices at the consumer level. It doesn’t take much scrutiny to realize that no individuals or companies would go near these markets if large profits weren’t to be made. After all, everyone needs to eat.
There is presently no way for the Farmer to benefit from these profits short of joining the commodity trading himself (an added risk few Farmers need). With the advent of the Internet trading this trend is only going to increase.
The net result is that where commodity traders can invest and make their profits, often in a single day, long before a crop is even harvested…the Farmer on the other hand can’t expect to be paid even with delivery of the crop to elevators. If one takes the two extremes of a commodity being traded up to two years prior to harvest and a Farmer waiting two years for payment after harvest, a spread of four years, one can see the inequity in the system. The Farmer only gets the money left over when the profit potential has become too small for the traders to bother with. This margin, (which cannot be construed as a profit margin) is what is left for the Farmer. Additionally, because of this payment delay, Farm Income is diminished by interest and inflation…often caused by the robust trading itself.
The Farmer, despite having the greatest personal investment in assets and time, has the least to say about the price/profit margin. He is also the last person in line to be paid after putting forth the most effort.
It only takes a brief look at History to conclude that if the Farmer fails, everyone fails. A worldwide glitch in food production will destroy the Modern System as we know it and if it does, all the profits made in year’s commodity-trading may not afterwards buy a bag of groceries.
A SOLUTION TO THE PROBLEM?
There is a solution to at least the Canadian aspect of the problem. At an ethical and possibly legal level, one can view all trading-profits and taxes paid on those profits as part of the final cost at the consumer level. As the Farmer is the first one to invest and the last one to be paid, he is in effect subsidizing all the people in between. Of course everyone looking at the situation, knows something is wrong, but how to fix it? Investors deserve profit for their risk and they do pay taxes on those profits. The stray dog seems to be the government, in that they are exacting a tax portion before the Farmer is paid, instead of afterwards.
Governments have a natural fear of opening up tax-loopholes to other special interest groups. If a legal basis for the above can’t be established, this fear might be allayed by giving food production a special government mandate (as it has in theory anyway), linking it to a moral imperative to protect the country’s food source. The idea of a government making money from food production should be considered morally reprehensible. This could be implemented by (instead of a surtax on food) allocating all taxes collected on food-commodity trading to Farmers. The government should get its money from the Farmer the way they get it from everyone else…with income tax…after the Farmer has been paid.
COMMODITIES FROM FOREIGN SOURCES
An argument that the Canadian Government has no taxing jurisdiction over Canadian commodities traded internationally can be reconciled by applying the above rule to all foreign farm commodities traded within Canada. This would give an equitable average over the two sectors.
The alternative puts not only the farmer at continuing risk, but the entire country and even the World. After many years of plenty, the Western World doesn’t realize how vulnerable they are to famine, more so than at any time in History. With such a small percentage of the population on the farm, even a moderate famine would bring the modern infrastructure to a standstill.
The mandate of government is to be a servant of the people in facilitating issues that the populace has little time for. This means that the everyday necessities of life should be their minimum mandate, taxation should be a means to achieve that, not an end in itself. If society has sufficient inexpensive food and shelter, he is freed up to build his society. If food and second level necessities such a fuel are made expensive, than it’s like throwing gravel instead of lubricant into the gears of Social progress. People are reduced to little more than animals searching for scraps of food just to carry on with their daily lives.
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